Weakening of major indexes continued last week. Leaders stocks such as BIDU, CAT, SOHU, AAPL corrected and broke recent supports and this is a signal of a possible downside move for indexes. The riskiest is Nasdaq100 in my opinion (Chart) with a target on the downside toward 2330-2300 at least. I plan to open a short strategy with options or CFDs in on Monday doesn’t open with a drop. I have to decide which style utilize.
Options give the chances to limit the risk to the premium paid while CFDs increases the losses if market rise and I short the index. I could but a put on QQQ @ 57-56 or short the index, stopping if breaks the recent highs. In this case the short is quite good as risk/reward
I think that open some short positions now is a good strategy under many points of view:
A) it gives a good leverage if a deep correction arise, risking quite few (especially the options, but also the short cfd/futures/or short etf because range of last 2 weeks was tight, therefore stops are close);
B) it gives an hedge if you try to open some long positions in the correction phases on some stocks;
C) as volatility is low a correction could arise stronger than expected because of imminent QE2 end in June.
On the other side, you must consider that trend is still up, even if there’re signal of weakening and the recent most stronger sectors are defensives. Weakening doesn’t mean that is over.
About trades, I got another stop this week on the Call spread on JPM. It reached the stop level and got out with a loss of 12% or premium paid. Last 2 months were disappointing…but when happen these periods where trades go wrong, I know that the underlying market is changing because I am a trend follower guy in most of my trades. And if I often got stopped, it means a weakening in the underlying trend. You could you use me as a trend indicator as well J
Among single name I am monitoring for a long I have: PM, CAT, BIDU, AXE, TIF, ALXN. PM is my favorite and I could open a long if general market doesn’t fall this week.
Today I am going to look also for some short name to open but I have to study further.
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